Medicaid Expansions to Young Children

In the 1990s, 2000s, and 2010s, many states expanded Medicaid programs such as the State Children’s Health Insurance Program (SCHIP). Brown et al. (2015) estimate the effect of these health insurance expansions on tax revenue and future government expenditures. They find that the majority of upfront costs are repaid to the government by the time children turn age 29 through increased tax payments due to increased earnings. Hendren and Sprung-Keyser (2020) use these estimates to form an MVPF of these Medicaid expansions using estimates from Brown et al. (2015). The key additional assumption imposed by Hendren and Sprung-Keyser (2020) relative to Brown et al. (2015) is to forecast how these these tax impacts persist over the lifecycle.

MVPF SUMMARY

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Brown et al. (2015) estimate that it costs Medicaid roughly $593 for every additional child-year eligible for the program. They also estimate that the program increased tax revenue by $533 through age 28. However, this estimate includes payroll taxes; for consistency with their other MVPF estimates, Hendren and Sprung-Keyser (2020) subtract the payroll tax share from this estimate. This suggests that 7.5% of the tax revenue is from payroll taxation, and thus the non-payroll tax fiscal externality is $493.

Brown et al. (2015) find an increasing impact on tax revenue over time, implying the effects likely continue beyond age 28. As in the other health and education programs they study, Hendren and Sprung-Keyser (2020) forecast the individuals’ earnings over the lifecycle. For years beyond what is observed in Brown et al. (2015), Hendren and Sprung-Keyser (2020) assume an effective tax and transfer rate of 18.9% from the Congressional Budget Office in their projection through age 65. This suggests the policy increases tax revenue by $1,023 by age 65. Beyond income, it is important to note that Brown et al. (2015) does not observe spending on healthcare (by the individuals or by the government). If the expansions improved health and reduced future medical spending, this would be a further cost reduction that is not included in their estimates.

In addition to taxes, Brown et al. (2015) find increases in future earnings and college enrollment and reductions in future mortality. The authors estimate that every additional child-year of Medicaid eligibility leads to an increase in after tax earnings from 19-28 of $644 un-discounted, and $304 discounted at 3%. Projecting the income gains at age 28 forward Hendren and Sprung-Keyser (2020) estimate that a further $3,296 in post-tax earnings gains would be realized. The increase in college enrollment suggests the increase in earnings reflects increases in labor market opportunities, and thus Hendren and Sprung-Keyser (2020) include the total post-tax earnings gain of $3,599 in the willingness to pay of the beneficiaries. When considering costs Hendren and Sprung-Keyser (2020) subtract the average public cost of enrolling in college of $8,014 per year, which increases government costs by $58. When considering willingness to pay Hendren and Sprung-Keyser (2020) also subtract the private cost of college enrollment, which reduces willingness to pay by $16.

In addition to earnings, Medicaid eligibility reduces mortality rates. Every additional child-year of Medicaid eligibility reduces mortality through age 28 by 0.02%. Using a $1M value of statistical life (2012 USD) and assuming the benefits accrue 23.5 years later (i.e. in the middle of the age range in the sample, discounted to age 0) it suggests a WTP for Medicaid eligibility from reduced mortality of $98. This implies a total WTP of $3,599+98-16 = $3,681. Their estimates of WTP also do not include any benefits to parents from the crowd out of private insurance policies and no valuation by the parents from reduced personal expenditures on children’s healthcare. Combining, their resulting MVPF is infinite (95% CI [-0.36, ∞]).

The estimates used to calculate this MVPF may have been updated in a more recent working or published version of the paper.